Business loans in the US: the types, how approval works for a foreign-owned company, and what happens in default

The United States has the deepest credit market for small companies anywhere in the world. Banks, credit unions, online lenders, equipment finance houses and government-backed programmes all compete to lend to businesses. A European owner who arrives with a profitable track record at home is often surprised to be turned down anyway. The usual reason is the file: no US credit history, no Social Security number for the personal guarantee, no US tax returns yet.

How an American lender reads your application

American credit officers still teach the five Cs: character, capacity, capital, collateral and conditions. In practice, for a small company, three questions decide most applications.

1. Can the business repay from its cash flow? Lenders want US tax returns and bank statements, usually for two years, and they calculate how comfortably operating cash covers the new loan payments.
2. Who stands behind it? For a young company the answer is the owner. In the Federal Reserve Banks' Small Business Credit Survey, fielded in late 2025, 59 percent of employer firms with debt said they had used a personal guarantee, and 51 percent had pledged business assets.
3. What can the lender take if it goes wrong? Equipment, receivables, inventory or real estate, recorded by a public filing so other creditors can see it.

Each of these is harder for a European-owned company in its first years. A personal guarantee from an owner with no SSN, no US credit report and assets mostly in Europe is worth little to a US bank, because it can neither score you nor easily enforce against you. Building a US credit file early is therefore the first step of any financing plan. Our pages on US bank accounts and credit scores and on business credit, D-U-N-S and PAYDEX explain how that file is built.

The main loan types at a glance

For most European-owned companies in their first two years, the realistic sequence is a business credit card, then a secured or small unsecured line of credit, then equipment financing, and only later a larger term loan. Our page on the business line of credit covers the most useful first product in detail, and our guide to SBA loans and who qualifies covers the government-backed programmes.

What borrowing costs in late 2026

Most US business loans are priced off the prime rate, the benchmark that banks publish and the Federal Reserve reports in its H.15 statistical release. On October 27, 2026, the bank prime loan rate stood at 7.00 percent and the effective federal funds rate at 3.88 percent. Variable-rate lines of credit and many term loans are quoted as prime plus a margin, and the margin grows with the lender's view of your risk.

The SBA caps what lenders may charge on its 7(a) loans. For variable rates, the maximum is the base rate plus 6.5 percentage points on loans of $50,000 or less, plus 6.0 points from $50,001 to $250,000, plus 4.5 points from $250,001 to $350,000, and plus 3.0 points above $350,000.

One difference from Europe deserves attention. The federal Truth in Lending rules, which force a standardised annual percentage rate in consumer lending, do not apply to an extension of credit primarily for a business purpose. A few states have filled part of the gap. New York's Commercial Finance Disclosure Law, for example, requires certain providers of commercial financing of up to $2.5 million to give standardised disclosures when they make an offer, including for sales-based financing. Elsewhere, compare offers yourself: convert fees, factor rates and daily payments into an annual cost before you sign. The Federal Reserve survey found that 60 percent of firms that borrowed from online lenders reported actual costs higher than they had expected.

Applying: the file that gets approved

American lenders decide on documents. A complete file shortens the process and signals that the company is run well. Expect to provide:

• Formation documents, the EIN letter and the operating agreement or bylaws, showing who owns and controls the company.
• US business tax returns and year-to-date financial statements, with a debt schedule listing every existing loan and lease.
• Business bank statements, usually for at least the last twelve months.
• Personal financial statements and tax returns of every owner the lender asks to guarantee.
• A short business plan with cash flow projections, the purpose of the loan and how it will be repaid.
• For collateral: equipment quotes, a purchase contract, an appraisal.

The Equal Credit Opportunity Act protects business applicants too. Under Regulation B, which implements it, a creditor must notify an applicant of its decision within 30 days after receiving a completed application. For a business with gross revenues of $1 million or less in its last fiscal year, the applicant is entitled to the specific reasons for a rejection on request; for larger businesses, written reasons are given if the applicant asks in writing within 60 days. Ask for them. The reason for a refusal is the most useful piece of advice you will get for the next application.

Owners without a Social Security number should apply for an ITIN early; many lenders need a US taxpayer number for every guarantor. Our page on applying for an ITIN explains the process.

Five financing myths we hear from European founders

1. "My European balance sheet will carry the US loan." Rarely. A US lender wants US cash flow and something it can enforce in the US. A parent guarantee helps only if the lender can assess the parent and is willing to enforce abroad.
2. "Bad credit means no credit." Not in America. A thin or damaged file narrows the options to secured products, equipment financing, factoring and smaller online loans at higher prices. The answer is to borrow small, repay perfectly and graduate.
3. "The SBA lends the money." For its main business programmes it does not. 7(a) loans are made by SBA-approved lenders, 504 loans by certified development companies together with a bank, and microloans by intermediary lenders. The SBA's guarantee reduces the lender's risk, but the lender still decides.
4. "A merchant cash advance is a short loan." It is usually structured as a purchase of your future receivables, repaid as a share of daily sales, and its effective annual cost is often far above that of a bank loan.
5. "I should borrow as much as they offer." Borrow for a purpose that pays back the loan: equipment that raises output, stock that turns into sales, premises that replace rent. Using debt to cover operating losses only delays the problem and makes it more expensive.

Bridge loans: when a gap is worth paying for

A bridge loan covers a short, defined gap: you have signed the sale of a property but closing is in four months, a funding round is agreed but not yet wired, or you buy new premises before the old ones are sold. Bridge lenders price for speed and risk. Terms are usually measured in months, rates are well above a bank term loan, and there are often origination and exit fees.

The question we ask clients is always the same: what exactly repays this loan, and on what date? If the answer is a signed contract with a closing date, a bridge loan can be a sensible tool. If the answer is "we expect to refinance", the bridge can turn into an expensive trap when the refinancing does not come. For real estate, our page on US property financing for foreign buyers explains the longer-term alternatives.

Making the loan work for the business

Lenders love borrowers who use credit the way it was meant to be used. Four habits keep a loan profitable:

• Match the term to the asset. Finance a five-year machine over five years, not a two-year line of credit. Finance stock with a revolving line, not a ten-year loan.
• Read the covenants. Many term loans require minimum debt service coverage, annual financial statements and permission before you take on more debt or change ownership. Breaching a covenant can be a default even if every payment is on time.
• Keep the books clean. Monthly reconciled accounts make renewals and increases straightforward. Our page on banking for your US company covers the account structure lenders like to see.
• Talk early. A lender told about a problem in advance has options. A lender who discovers it from a missed payment has fewer.

What happens when a business loan defaults

A default rarely happens overnight. The usual sequence looks like this:

1. Missed payment. After a grace period the lender charges late fees and may switch to a higher default interest rate set in the loan agreement.
2. Notice and acceleration. Most loan agreements let the lender declare the whole balance due immediately after an event of default, including covenant breaches.
3. Collateral. Under Article 9 of the Uniform Commercial Code, a secured lender may take possession of the collateral after default, through the courts or without them if it can do so without a breach of the peace, and then sell it. Equipment and receivables can be gone quickly.
4. Guarantees. If the collateral does not cover the debt, the lender turns to the guarantors. A personal guarantee makes the owner liable for the shortfall, regardless of the company's limited liability.
5. Federal collection for government debts. When a debt ends up owed to a federal agency, as can happen with government-backed loans, federal agencies generally must refer non-tax debts that are between 60 and 180 days delinquent to the Treasury's Cross-Servicing programme, whose tools include the Treasury Offset Program, administrative wage garnishment and private collection agencies.
6. Settlement and tax. If the lender accepts less than the full amount, the forgiven part is generally taxable income, reported on Form 1099-C, unless an exclusion such as bankruptcy or insolvency applies.

The practical lesson for a European owner: before you sign a personal guarantee, decide what you are prepared to lose, and negotiate a cap or a release once the company meets agreed targets. When trouble starts, involve your advisers before the acceleration letter arrives, while a restructuring is still cheap.